Market Segmentation and the Cost of Capital in International Equity Markets

Errunza, Vihang R.; Miller, Darius P.

doi:10.2307/2676256

Cited by 333 publications

(257 citation statements)

References 48 publications

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“…Even though Miller (1998) interprets his evidence from the perspective that listing shares on a foreign market relaxes barriers to international investment, it is important to note that his evidence is fully supportive of models such as those of Cantale (1998) and Fuerst (1998) Both Foerster and Karolyi (1999) and Errunza and Miller (1998) estimate returns before and after the initiation of an ADR program. Strikingly, Foerster and Karolyi find that firms that list experience an unexpected increase in their stock price of 19% for the year before the listing.…”

Section: Event-study Approachesmentioning

confidence: 99%

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Globalization of Equity Markets and the Cost of Capital

Stulz

1999

273

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Section: Event-study Approachesmentioning

confidence: 99%

“…22 Errunza and Miller (1998) report an unexpected increase in the stock price of 8.06% for the six months preceding the announcement. For the six months following the announcement month, they find that their sample firms outperform by 2.28% comparable firms that do not announce an ADR program, but this result is not significant.…”

Section: Event-study Approachesmentioning

confidence: 99%

Globalization of Equity Markets and the Cost of Capital

Stulz

1999

273

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“…These controls are designed to capture variance in US cross-listing levels related to factors other than legal system and rule of law factors linked to cross-listing for bonding purposes. We noted earlier that US cross-listing may follow from several motives other than bonding: cross-listing to overcome local capital market segmentation and increase investor recognition (Foerster & Karolyi, 1999;Errunza & Miller, 2000); cross-listing to increase liquidity (Amihud & Mendelson, 1986); cross-listing to enhance foreign employee benefits (Rock, 2001); cross-listing to facilitate overseas mergers, acquisitions and other major corporate transactions (Saudagaran, 1988;1990;Saudagaran & Biddle, 1995). Accordingly, our controls include a market segmentation control (Market Segmentation) measuring the availability of capital for entrepreneurs from country k in year t on a scale of 1 (low availability) to 6 (high availability).…”

Section: Regression Analysesmentioning

confidence: 99%

“…Others explanations include cross-listing to overcome local capital market segmentation and to increase investor recognition (Foerster and Karolyi, 1999;Errunza and Miller, 2000), to increase liquidity (Amihud and Mendelson, 1986), to enhance foreign employee benefits (Rock, 2001), and to facilitate overseas mergers, acquisitions and other major corporate transactions (Saudagaran, 1988(Saudagaran, , 1990Saudagaran and Biddle, 1995).…”

mentioning

confidence: 99%

Legal System and Rule of Law Effects on Us Cross-Listing to Bond by Emerging-Market Firms.

Vaaler¹,

Schrage²

2007

AMPROC

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An emerging "bonding hypothesis" holds that a firm's geographic domicile may not determine its corporate governance destiny. Firms from countries with weaker corporate governance regimes can internationalize their legal (but not necessarily operational) presence by cross-listing their securities on overseas financial markets. They can "bond" with legal systems and enforcement policies in foreign corporate governance regimes providing stronger investor protection. Cross-listing to bond increases firm value by decreasing corporate misconduct, broadening the investor base, and lowering the cost of capital. We document evidence of cross-listing to bond with stronger legal systems and rule of law by more than 700 firms from 23 emergingmarket countries cross-listing their securities on US financial markets from 1996-2006. We find that: 1) US cross-listing levels are lower for firms from Common Law countries providing stronger investor protection, but only in Common Law countries with weaker rule of law; 2) US cross-listing levels are higher for firms from Civil Law countries providing weaker investor protection, but only in Civil Law countries with stronger rule of law; and 3) such US cross-listing trends do not vary with the enactment of major US corporate governance reforms in the 2000s. Emerging-market firms exhibit behavior consistent with bonding hypothesis considerations and cross-list as a commitment to a more rigorous corporate governance regime, but the behavior is contingent and depends on examination of both legal system and rule of law effects individually and in interaction. Our empirical results highlight the importance of broadening investigating of firm internationalization to consider legal dimensions. Firms have discretion to choose foreign corporate governance regimes with less or no regard to where their operations are located.Keywords: corporate governance, internationalization, law, finance, cross-listing, bonding 3 IntroductionThis empirical study examines links between the quality of corporate governance regimes in emerging-market countries and efforts by emerging-market firms to internationalize their legal presence through cross-listing shares on US financial markets and "bonding" with substantive US laws and rule of law.Over 30 years of management research has produced rich theoretical and empirical bases to explain motives for and performance implications of firm internationalization. Prominent theories hold that firms are motivated to expand operations abroad as multinational enterprises ("MNEs") in order to internalize and exploit international market imperfections (Buckley and Casson, 1976), to minimize international transaction costs in the presence of opportunistic foreign counter-parties (Hennart, 1982), to cope with difficulties in identifying, absorbing, and transferring distant and tacit knowledge sources (Kogut & Zander, 1993), and to manage the confluence of ownership, locational and internalized market opportunities available to the firm (Dunning, 1977 , 1999a, 1999b, 20...

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“…Firms may be motivated to list to gain lower costs of capital associated with more efficient risk sharing [11] or greater investor recognition [12], greater access to capital [13], improved liquidity [14], or improved product market visibility [15]; see also Chaplinsky and Ramchand [16].…”

Section: Introductionmentioning

confidence: 99%

Accounting and Stock Market Performance in the US: Evidence from Joiners and Leavers

Floros¹,

Tabouratzi²,

Charamis³

et al. 2017

TEL

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We consider recent data from three major US indices (S & P500, NASDAQ 100, and DJIA) to examine the effect of joiners and leavers on stock market returns and volatility. We report (a) a positive effect of leavers on stock market returns (S & P500, DJIA), (b) a positive effect of leavers on stock market volatility (S & P500), and (c) a negative effect of joiners on DJIA stock market returns and volatility. No effects reported for NASDAQ100. We compare these results with the profitability, P/E and Price to Book index ratios. These findings are recommended to financial managers and investors dealing with US stock indices.

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Market Segmentation and the Cost of Capital in International Equity Markets

Cited by 333 publications

References 48 publications

Globalization of Equity Markets and the Cost of Capital

Globalization of Equity Markets and the Cost of Capital

Legal System and Rule of Law Effects on Us Cross-Listing to Bond by Emerging-Market Firms.

Accounting and Stock Market Performance in the US: Evidence from Joiners and Leavers

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